Are Foreign Direct Investment and Portfolio Investment Effective on Unemployment Rates in Türkiye? Toda-Yamamoto Causality Analysis

Neoliberal reforms and globalization movement that started in the 1980s paved the way for international capital flows. Thus, foreign capital has become an important resource especially for developing countries with a savings deficit. In parallel with the developments in the world, Türkiye, which has opened outwards, has also received a significant amount of foreign capital inflows since the 1990s. This study analyzes the relationship between foreign direct investments and portfolio investments, constitute the two main components of international capital flows, and unemployment rates. According to the results of the Toda-Yamamoto causality test conducted with annual data for the period 1990-2022, there is bi-directional causality between foreign direct investments and unemployment rates. On the other hand, unidirectional causality is found between portfolio investments and unemployment rates, from portfolio investments to unemployment rates. Based on these findings, it can be said that foreign capital inflows to Türkiye have an impact on unemployment rates.